Category: Strategy

One of the questions I get on a regular basis when talking to other entrepreneurs is “why do you have multiple companies?” In general, I’m against having parallel startups because it takes so much time and energy to make one successful, let alone several. For me, the opportunity presented itself because my first company was in a great spot with a management team that had worked together for several years and complemented each other well. This freed up my time to explore new product ideas to solve problems I had encountered — there were many itches I wanted to scratch.

Here are some pros of having parallel startups:

• Ability to work on wider range of projects and challenges
• Centralized back-office for HR, accounting, and office management
• Shared office space for better economies of scale (e.g. great internet connection, snacks, games, etc), pseudo co-workers, and more
• Increased idea and experience sharing among the startups
• Better likelihood of getting the market timing right, which I believe is one of the most critical elements
• Startup-specific stock option pools

Tomorrow I’ll talk about the cons of having parallel startups, the biggest of which is that without sufficient resources and dedication by team members, a startup won’t make enough progress to become viable. Having parallel startups can work well with the right pieces in place, the most important being either a successful startup with a complete management team or extensive resources to fund the ideas for extended periods of time.

What else? What are some other pros of having parallel startups?

What are the six most profitable words of all time? Answer: do you want fries with that? In a reverse fashion, every entrepreneur should know the four best money saving words: what’s your best price? Most items are negotiable and you won’t get a discount unless you ask.

Cash is one of the top three responsibilities of a CEO (along with setting vision and getting the right people on the bus). It’s in this regard that the CEO needs to set the tone that getting a competitive price from suppliers is a core requirement. Everyone in the startup should have “what’s your best price” on their lips when talking to vendors.

Now, when doing pricing for our products I’m a big proponent of fixed prices with no negotiating. This strategy ensures pricing integrity across customers, reduced sales cycles, and increased customer trust. It works particularly well with Software-as-a-Service products. But, most of the world works with negotiable pricing and “what’s your best price” should be asked in every engagement.

What else? What do you think of using “what’s your best price” when negotiating?

After talking with hundreds of entrepreneurs in the Entrepreneurs’ Organization and the community, one of the more repeated themes that comes up is the search for recurring revenue. The pattern is as follows: entrepreneur follows his/her passion, startup gets some traction after two or three years, revenue is lumpy, school of hard knocks teaches entrepreneur that inconsistent revenue is extra challenging, and finally entrepreneur starts searching for recurring revenue. Numerous entrepreneurs have brought this up to me.

Here are some reasons why recurring revenue is desirable:

• Allows for more consistent cash flow
• Makes it easier to plan and forecast
• Provides for better sleep at night knowing payroll will be met (assuming break even or profitable)
• Enables easier year-over-year growth since the recurring revenue layers on top each year (assuming low churn)
• Values a company more substantially, all things being equal, to a similar revenue and profitability company that isn’t recurring

Recurring revenue is often more difficult to get going as the customer is financed over a period of time vs paying a lump sum up-front. In general, a recurring revenue business is the way to go, but much harder to achieve. The search for recurring revenue continues.

What else? Have you talked to entrepreneurs searching for a recurring revenue business?

Recently I received an email from a sales rep for a service we’ve been paying a couple thousand dollars a year for over three years. He politely informed me that we’ve been going over our monthly allotment resulting in overage fees, but more importantly, our current pricing is significantly out of date and the plan we’re on now, even when adding in overages, is more than twice as much for new customers. Since we were one of their first paying customers they are offering to cut their published price in half in exchange for us signing their new terms of service, which are more strict and less desirable (changes to SLA, number of items that can be used, etc).

So, a summary of the situation:

• Early adopter customer of three years paying slightly less than half the new pricing
• Vendor desires the customer to be on the current pricing plan with more strict terms of service and pricing model but better support hours
• Vendor offers customer 50% off published pricing to move to current plan so as to standardize contracts, pricing, and lock in rates for future customer growth

This is a fair approach and we’ll go with the new pricing. My recommendation is to grandfather in existing customers letting them keep their pricing as long as they want. If a legacy customer requires a serious change to their plan, the new pricing should take effect with a long-standing customer discount. It is time consuming to have customers on different plans but the goodwill and continuity of consistent pricing helps keep happy customers, which are the lifeblood of a business.

What else? What are your thoughts on legacy customers and pricing increases in startups?

Naming a startup should not be difficult. While the days of getting a good domain name for $8 are over, a decent startup name, and corresponding domain name can be had for $1k – $2k. Starting out with a strong name is important as it is a) a pain to change it later and b) powerful for making the startup idea more concrete when selling, recruiting, etc.

Here are a few tips for naming a startup:

• Keep the name short, preferably 10 characters or less
• Look for one industry relevant word and a catchy word to go with it (e.g. PlacePunch) or a made up word that is pseudo relevant (e.g. Clickscape)
• Require a .com domain name and plan to spend $1k – $2k to buy an existing domain (e.g. using sedo.com) if you can’t find an unregistered domain name (buying an existing name can help with SEO if it has been registered for an extended period of time)
• Do a simple trademark search on USPTO.gov to make sure it or something similar (like a plural form) isn’t already registered
• Check for the Twitter and Facebook name availability

Naming a startup can be a long, drawn out effort. Don’t do it. Make it a simple process with a spreadsheet and quickly narrow down five viable options. Take the options to your friends for feedback (not consensus!), make a decision, and move on.

What else? What other things do you like to do when naming a startup?

In the past month I’ve heard two different entrepreneurs mention satellite offices they already have for their business. We don’t have any satellite offices so I’m always curious to learn pros and cons from others. In both cases the entrepreneurs said the driving force behind the locations (one in Denver and one in NYC) was that they loved the area. That’s right, these entrepreneurs have offices in different cities driven by their personal enjoyment of the location. Of course, the locations are justified by additional reasons: one wanted a location to service clients on the west coast and one had a big client already in the city.

The general idea isn’t that it’s right or wrong to make potentially important business decisions based on your personal lifestyle choices but rather that as an entrepreneur you can do that. Entrepreneurship, when successful, opens up opportunities to control your destiny and fulfill personal desires that might not have otherwise been expected.

As a side note, there’s a similar example with venture capitalists. A good friend has a fraternity brother who’s a VC in the midwest that invested in a company that’s in the hometown of his wife 600 miles away. I’m sure the investment passed the firm’s standard investing criteria, but I also know that the location helped with this VC’s personal interest in the deal.

What else? What are your thoughts on satellite startup offices because you like the city?

Earlier today I was talking to a bright entrepreneur and the topic of ecommerce came up. He gave an example that he was skeptical that big box retailers, especially Home Depot, would be around in their current form in the next decade or two. The big problem on their hands is that even though they carry 100,000+ products, all of their profits come from fewer than 1,000 products that have strong gross margins and higher average ticket prices (e.g. power tools). Those same high profit products are the ones that Amazon.com can deliver at significantly lower cost because their model isn’t predicated on “big hits” but rather works well with the long tail.

Here’s his theory on Amazon.com and big box retailers:

• Amazon.com is going to keep building out distribution centers with the goal of eventually having same day delivery of most products
• Big box stores like Home Depot have prime real estate and will have to close the lowest performing 75% of theirs stores and turn the remaining 25% into distribution centers that act more like a warehouse to service building contractors and do-it-yourselfers
• Margins on the most profitable items will start contracting forcing more big box retailers to make drastic changes, with some like CompUSA and Circuit City going out of business
• The big question comes down to “will they slowly fight change or embrace it and get ahead of the curve?”

Amazon.com is an amazing company with their scale and reach growing daily. Big box stores like Home Depot, in their current form, will face more and more challenges.

What else? What do you think of this theory on Amazon.com and big box stores?

Tonight as I was turning on to Peachtree Rd at West Paces Ferry I noticed a large billboard at the intersection that simply said SweetJack.com. Being the startup junkie that I am, I wondered what it was and made a note to check it out later. Well, I pulled up the site and, you guessed it, it’s another daily deal site like Groupon, Living Social, Scoutmob, and Half Off Depot.

The most interesting thing about SweetJack is that it is part of the large Cumulus Broadcasting company. One of the questions about the daily deals market has always been what’s blocking others from entering the market? A media company, that has a significant sales team and existing relationships with a variety of businesses, is uniquely suited to start a daily deals site due to the clear economies of scale from existing infrastructure.

Now, is yet another deal site (YADS) a sign of a bubble? I do think there are signs of a bubble but I have no concerns of a bankruptcy-induced crash. See, the big difference with this market, compared to the dot-com hey day of the late 1990s, is that this is a viable economic model whereby vendors split revenue with marketers that drive business to their store. It is grounded in real dollars with real consumers. Will there be significant consolidation, pricing pressure, and daily deal sites that don’t make it? Yes, just like any market that is at the will of the invisible hand.

What else? Do you think there’s a bubble with daily deal sites?